China interbank rate falls sharply

China's interbank borrowing costs, or Shibor, dropped the most in four months on speculation the central bank will pause in raising interest rates as growth moderates in the world's second-largest economy. Government data due tomorrow is expected to show gross domestic product increased 9.3 per cent in the second quarter from a year earlier, the least since September 2009, according to the median estimate in a Bloomberg survey of economists. The trade surplus widened to a seven-month high of $22.3 billion in June as imports grew at the slowest pace since 2009, the customs bureau said yesterday. The Shanghai interbank offered rate for three- month yuan loans, dropped seven basis points to 6.24 per cent, according to a daily fixing rate published by the National Interbank Funding Centre in Shanghai. The rate hit a record high of 6.46 per cent on June 28. The central bank raised its one-year lending and deposit rates by a quarter of a percentage point on July 7, the third increase of 2011. "The market is speculating inflation has peaked this year and another interest-rate hike probably won't be possible in the short term," said Liu Junyu, a bond analyst in Shenzhen at China Merchants Bank Co., the nation's sixth-largest lender. "Also, the widening surplus means more capital flowing into the economy, helping to ease the cash shortage." Inflation accelerated to a three-year high of 6.4 per cent in June, from 5.5 per cent in May, the statistics bureau said on July 9. The seven-day repurchase rate, which measures interbank funding availability, dropped 83 basis points to 5.32 per cent, according to a weighted average rate compiled by the Interbank Funding Center. China's finance ministry failed to sell all of the three-year debt offered on behalf of local governments at an auction yesterday as a cash crunch curbed demand. The ministry sold 23.9 billion yuan (Dh13.5 billion) of bonds at a yield of 3.93 per cent on behalf of 11 provinces and municipalities, falling short of its 25 billion yuan target, said a trader at a finance company required to bid at the auction. That's the fourth time it's failed to sell all of the debt offered at a sale this year. "While the interbank borrowing cost is so high, investors won't spend money on local government debt," said Huang Yanhong, a bond analyst at Bank of Nanjing Co. in Nanjing. "Demand is also low because the debt's secondary-market trading isn't active. After you buy it, you can only hold it till maturity." The central government will sell 200 billion yuan of bonds on behalf of local authorities this year. Yesterday's auction was the first involving this type of debt in 2011 and 25.4 billion yuan of five-year notes were sold at a yield of 3.84 per cent. The one-year interest-rate swap contract, the fixed cost needed to receive the floating seven-day repurchase rate, declined three basis points to 3.80 per cent, according to data compiled by Bloomberg. It dropped as much as six basis points to 3.77 per cent, the lowest level since July 4. The yield on the 3.83 per cent government bond due March 2021 was unchanged at 3.83 per cent, according to the Interbank Funding Center. A basis point is 0.01 per centage point. From / Gulf News